A Program for Monetary Stability

by Milton Friedman

"[T]he only really sure way to beat inflation is to cut off inflation at the root. . . Milton Friedman [presents his strategy against] inflation in his penetrating . . . book . . . This is controversial stuff, and Professor Friedman . . . doesn't blanch at what he feels is his call of duty. And many a banker will just see red . . . [This book] can be recommended for a good look at the real roots of inflation―the look that thus far has not been widespread enough, among enough people."― The Wall Street Journal

Genres: Economics, Finance

Paperback

First published January 1, 1983

About the author

Milton Friedman was an American economist who became one of the most influential and controversial figures of the twentieth century, widely recognized for his profound contributions to monetary economics, consumption theory, and the defense of classical liberalism. A leading figure of the Chicago School of Economics, Friedman challenged the prevailing Keynesian consensus that dominated mid-century policy and instead placed monetary policy at the center of economic stability, arguing that changes in the money supply were the primary drivers of inflation and fluctuations in output. His groundbreaking permanent income hypothesis reshaped the study of consumer behavior by suggesting that individuals make spending decisions based on long-term expected income rather than current earnings, a theory that profoundly influenced both academic research and practical policymaking. Alongside Anna Schwartz, Friedman coauthored A Monetary History of the United States, 1867–1960, a monumental work that emphasized the role of Federal Reserve mismanagement in deepening the Great Depression, a thesis that redefined historical understanding of the period and helped establish monetarism as a major school of thought. His broader philosophy was articulated in works such as Capitalism and Freedom, where he argued that political and economic liberty are interdependent and advanced ideas like educational vouchers, voluntary military service, deregulation, floating exchange rates, and the negative income tax, each reflecting his conviction that society functions best when individuals are free to choose. Together with his wife Rose Friedman, he later brought these ideas to a global audience through the bestselling book and television series Free to Choose, which made complex economic principles accessible to millions and expanded his influence beyond academia. Awarded the Nobel Prize in Economic Sciences in 1976 for his achievements in consumption analysis, monetary history, and stabilization policy, Friedman became a prominent public intellectual, sought after by policymakers and leaders around the world. His ideas strongly influenced U.S. policy in the late twentieth century, particularly during the administration of Ronald Reagan, and found resonance in the economic reforms of Margaret Thatcher in the United Kingdom, both of whom embraced aspects of his prescriptions for free markets and limited government intervention. Friedman’s policy recommendations consistently opposed measures he regarded as distortions of market efficiency, including rent control, agricultural subsidies, and occupational licensing, while he proposed alternatives such as direct cash transfers through a negative income tax to replace complex welfare bureaucracies. His teaching career at the University of Chicago shaped generations of economists, many of whom extended his research and helped institutionalize the Chicago School as a major force in global economic thought, while his later role at the Hoover Institution at Stanford University provided him with a platform to continue his scholarship and public advocacy. Beyond technical economics, Friedman’s clarity of expression and ability to frame debates in terms of individual freedom versus state control made him one of the most recognizable intellectuals of his era, admired by supporters for his defense of personal liberty and market efficiency, and criticized by detractors who accused him of underestimating inequality, social costs, and the complexities of government responsibility. Despite the controversies, his impact on the development of modern economics was immense, reshaping debates about inflation, unemployment, fiscal policy, and the role of the central bank. His writings, lectures, and media appearances consistently reinforced his belief that competitive markets, voluntary exchange, and limited government intervention offer the most effective means of promoting prosperit

Reviews

[Laura]

This book made me realize how many popular misconceptions there are about Friedman’s advocacy.

1) I had heard or been taught that Friedman advocated a constant rate of money stock growth as some normatively good policy. Instead he makes super clear that he thinks it’s the best monetary policy *can* accomplish. His advocacy for constant money growth is rooted in pessimism about monetary policy’s ability to offset minor fluctuations given its lagged effect on the economy. Since we can’t forecast the effects of nonmonetary factors on prices at the horizon that monetary policy affects prices, the best we can do is keep the money stock growing with potential supply (aka removing any monetary effect on price instability), rather than trying to target “price stability” itself. Simply because monetary policy cannot do the latter.

2) Friedman doesn’t argue that we should look at measures of the money stock to predict prices in the short run. A ton of people who consider themselves Friedmanites started freaking out about measures of the money stock rising during 2020 and claiming that if only we stayed true to Friedman we would’ve better predicted the 2021 inflation. Friedman outright denies that money stock measures have a stable relationship with prices in the short run, only in the long run. Which makes sense.

3) Friedman doesn’t argue that targeting money stock measures / thinking about monetary policy as directly affecting money is better than targeting / framing it in terms of interest rates. They are equivalent, which makes sense - econ 101 says you can either change prices or quantities and these are isomorphic! But I’ve had Harvard professors make me justify why I talk in terms of interest rates since they were taught in terms of money. Friedman says these are equivalent, just prefers to talk in terms of money because there is no one interest rate that is necessarily the right measure of credit supply. (But same with money! But probably less of a problem.) If we could have one good summary statistic for all the relevant interest rates then it seems Friedman wouldn’t have an issue with it.

[Okan · Rating 5 out of 5]

Bruh it's Friedman you know it's going to be very interesting. He's a very persuasive writer so if like me you're very impressionable and not clever enough to come up with a counter argument to Friedman's views be sure to read something by one of Friedman's opposite numbers such as Minsky.